The Commerce Department data on housing starts support Fitch Ratings’ belief that the “housing recovery is occurring in fits and starts.”

It did note that while multifamily starts were down in June, the residential numbers were better and that builder confidence as measured by the National Association of Home Builders/Wells Fargo Housing Market Index was at its highest in over seven years.

“These are good indications that demand is still very evident and that builders of single-family homes remain optimistic.

“We continue to believe that still-attractive home prices, low mortgage rates and a rise in nominal incomes are resulting in superior affordability and valuations. While interest rates may be on the rise, it's important to note that they are still near historically low levels, thus borrowing is still attractive for potential homeowners.

“The new housing market is still in a period of recovery, and we expect realized demand is and will continue to be tempered by widespread negative equity, challenging mortgage qualification standards, lot shortages and excess supply due to foreclosures in certain markets,” the Fitch analysts said.

Separately, in its U.S. RMBS 4Q12 Sustainable Home Price Report, Fitch looked to make the case that there is a disconnect between rising home prices and sluggish local economies for numerous cities.

The ratings agency said that home prices were up 17% for Detroit in 4Q12 while the city's unemployment rate was over 11%. Then there is Las Vegas, with a 13% increase in home prices from yearend 2011 despite a 10% unemployment rate. Other cities exhibiting this trend are Los Angeles, Sacramento and Riverside, all in California.

“Housing markets in Detroit and Las Vegas experienced huge drops in prices during the crisis, so the abrupt rise is worth keeping an eye on given the still-languid state of their respective economies,” said Fitch’s Stefan Hilts.

With real home prices rising nearly 6% last year, U.S. home prices are considered 12% overvalued based on 4Q12 data, Fitch said.

“As markets stabilize and improvement in localized economies is more pronounced, the gap between actual and sustainable home prices should narrow,” said Hilts.